Assura (OTC:ARSSF) — Interim Results

0:02 Good afternoon, ladies and gentlemen, and welcome to the ASSURA PLC Interim Results Investor Presentation. Screen. Just please simply type in your question at any time and press send. The company may not be in a position to answer every question received during today's meeting. However, the company review all questions submitted today and publish responses where it's appropriate to do so. We'll make these available to you via the investment company dashboard, and we'll notify you when they're ready for your review. I'd also like to remind you that this

0:32 presentation is being recorded. Before we begin, we would like to submit the following poll. And if you would give that to your kind attention, we would be very grateful. And I'd now like to hand over to Jane Cotham, CFO, and Jonathan Murphy, CEO from ASSURA. Good afternoon to you both. Good afternoon, and thank you for joining us for this afternoon's presentation. So so my name is Jonathan Murphy. I'm the CEO from ASSURA. So I'll begin by giving you a brief overview of our performance in the first half. I'll then pass over to Jane, and she'll take you through some of the key financials as well as giving you a brief strategy update. And then I'll come back and give you a little bit more context to what we're seeing in the market at the moment, market trends and developments, and also a little bit more about our our outlook, for the year ahead.

1:21 So turning first to the highlights from the first six months of the year. We've had a very busy period. I'm sure you've all seen lots of press coverage about the impact of COVID and the the the seismic changes that there have been in in the health market as a result, the backlog in services, the need for more capacity in our hospitals. This has all been, accelerating trends that we're already very well aware of, and it's very much playing to our core capability, which is delivering capacity for the NHS in out of hospital care. So we're a leading developer. We've created a a market position where we are the number one developer with the largest pipeline and the strongest team in the sector. And that means we're the best placed company to support the NHS and partner with the NHS in terms of delivering this all important capacity that the system so badly needs.

2:13 That will be reflected in our very strong outlook in terms of pipelines. We'll go through these in some detail coming up, but we've got a very strong acquisition pipeline. And, also, our development pipeline is now reaching levels that we have never seen before, so getting close to 500,000,000. And all of these increases in the size of our operations and our prospective growth all around driving, you know, superior returns for our investors as we generate, an increased scale of the business. We're able to generate scale benefits, and that's driving, the growth in returns and therefore dividends. So in terms of the impacts of COVID, I've already referenced some of these. There's been a massive backlog in terms of services. A waiting list have hit levels, frankly, that the country's never seen before.

3:00 You've probably read headlines about the increased health inequalities, ability to access health care, you know, and how that that diverges around the country. And our hospitals are really struggling for capacity. You know, our beds are being used for COVID patients, and COVID protocols mean there's a reduced capacity in the hospital system. So, of course, what we need to address that is to provide extra capacity in the primary care space. Now, unfortunately, the vast majority of medical centers in The UK can't do this. They aren't converted residential properties that could be even a 100 years old in many cases. And this is highlighting the urgent need for quality fit for purpose modern spaces to provide that capacity that the NHS so greatly needs. And where do we fit into all this?

3:45 Well, we we've got the the best in class capability in our development team, which means that we have the skills, we've got the capital, and we've got the ability to deliver and respond to those challenges. So we're looking to increase the number of schemes that we're working on, looking at across a range of of asset types, and also investing heavily in our design innovation and sustainability because that's absolutely fundamental to helping the NHS in achieving its net zero carbon goals.

4:16 So how do we do our business? So social impact and sustainability are absolutely at the heart of what ASSURA is all about. So we place this in at the center of our decision making, the way we run our business, and also the way we deliver our buildings. So there are two key elements to this. Six by six strategy covers both social impact and sustainability. So firstly, on the social impact side. Last year, we created the ASSURA community fund. This is a charitable organization, and we seeded this with £2,500,000 donation, and this supports health and wellness activities linked to our buildings. Just last week, we signed off £400,000 worth of grants going to causes right across the country supporting health and wellness activities linked linked to our buildings.

5:06 The other thing is working with our supply chain to make sure that we are driving as much sustainable activity as possible and also looking to support local skills and education needs wherever possible. And on the sustainability side, we've set ourselves a target of achieving an EPC of b or better in five years. That's well ahead of the government deadline of 2030. We've set a target of 2026. On new builds, we've said for new developments, we're going to we've got a target for 2026 of delivering The UK's first net zero carbon, medical center. Now that includes the embodied carbon in the construction process as well. A very challenging and ambitious goal, but one that we're fully committed to. And lastly, we're committed to sourcing all of our energy through renewable sources.

5:55 These commitments are absolutely fundamental to the way we do business and also in terms of supporting our major customer. We strongly believe that our six by six strategy is the right thing to do. It also aligns us with the values and the purpose of the NHS, which means ultimately, it will support our commercial success as well. Now I'll pass over to Jane to take you through some of the key financials. Jane? Thank you, Jonathan. So I'm Jane Cotton. I'm the CFO. Good afternoon, everybody. I'm gonna give you a few highlights on the finance update for the interim results and then take you through our our development strategy. So, if if we look at the figures there, our net rental income is up 12% year on year. We're now at, just over £61,000,000, which has led to our adjusted EPRA earnings increasing by 14% to £40,900,000.

6:54 At an earnings per share level, we've seen an increase of 7% year on year, and we're now at 1.5p. And we, aim to pass on the majority of our earnings growth to our shareholders, and we announced an increase in the dividend, back in June. And year on year, we have increased the dividend by 4%. And we will announce any further dividend increases at the year end. If we look at our portfolio, our investment property portfolio is now £2,600,000,000 and that's up 6% since March. We have had some yields compression, so we have had valuation growth of 20 valuation increase of £28,000,000, and we've also seen two basis points movement in our net initial yield to 4.56%.

7:47 Our EPRA net tangible asset per share has increased by 2% in the period to 58.4p, and our loan to value at the half year was 39%, which will reduce following the successful placing yesterday.

8:05 So these charts just highlight our portfolio growth. So on the left, you can see we've increased the portfolio by 1,500,000,000 since March 2016. And on the right, you can see where our rental growth has come from. So if we look at our rent roll, it's gone from, 121,000,000 to 127,500,000, and that's come from a range of activities across the business. So we we did a few disposals in the period. We 1,000,000 from our from our rent reviews, 1,300,000 is from completions within our development pipeline, and the majority, from our acquisition program of 4.5, 4,500,000. Our additions in the period were £170,000,000. That's across developments and acquisitions. So what this slide is highlighting is the growth in our portfolio since 2018.

8:59 So in four and a half years, we've added £1,100,000,000 to our portfolio. The majority has been acquisition led at just over 900,000,000, but we've added a 185,000,000 of completed developments. And all of those were very attractive yields on cost, in the last half. It's at 4.9%. And you can see the weighted average unexpired lease term on these additions is also very favorable at sixteen years in the last six months. And as a comparison, our portfolio, as I've said, the net initial yield is 4.56% and our weighted average unexpired lease term across the portfolio is eleven point seven years.

9:44 So what this slide is showing you is, how we have taken our strategy around our debt and how that compares to, our net initial yield. So the top line is showing the compression of our yields from 5.56% in 2015 down to 4.56%, at the last valuation. But in 2015, we took the decision to have a look at our balance sheet and how we structure our debt, and we decided to move from secured, lending to an unsecured portfolio of debt. We completed all of that last year, but three years ago, we we received an a minus rating from Fitch and that allowed us to access the public bond markets. So we have private placements. We have our bank revolving credit facility, and we also have, the bonds.

10:34 Our last bond in June was at 1.625 for twelve year money, and our weighted average maturity on our debt has increased from eight to eight and a half years. We raised our first sustainable bond in June following the successful social bond, the previous year.

10:55 Both of these transactions were heavily oversubscribed. The margin on our debt, was, considerably reduced from 128 basis points last summer, which we thought was fantastic. Moving forward to 85 basis points, this year, and that just shows you the strength of the business, the a minus rating, and the fact that we are raising our finance, in line with our sustainability strategy is proving incredibly beneficial. And that gap between our net initial yield and our cost of debt, we we, hoping to maintain moving forward. This just gives a little bit more color in terms of our history around our loan to value and our interest, interest rates. In terms of our loan to value, our guidance remains unchanged. We can go up to 50%.

11:44 However, that would only be in exceptional circumstances. We remain comfortable in and around 40. We're happy to go above 40%, but we would expect to bring it down over time.

12:00 So just looking at our development strategy. In March 2017, we had a development team of two people and we had a total development pipeline of a 122,000,000. We took that decision at that time that we really wanted to focus. We could see that the quality of the estate, primary care estate needs significant investment across The UK. There is support for better primary care facilities, and we started to gain some traction in the amount of approvals we were getting for new developments. Therefore, we strengthen that team and in the last couple of years, we have acquired a couple of developers, Matrix, GPI and, this year, we acquired Apollo. So we now have a team of 10 development managers and surveyors, and we have a record pipeline of developments of £480,000,000, which is the best in our history. And as I've already said, we've completed a £185,000,000 worth of developments since April 2017.

13:00 And the buildings on the photographs just underneath there on on the right are just examples of the buildings we've completed in the last eighteen months alone. We're really starting to see this strategy pay off for us as we're seeing record number of inquiries and the team are settling in and answering those and growing our development pipeline and capabilities. And this chart just gives you, an example of shows you how far we've come since March 2015 with less than a 100,000,000 in our pipeline. And you can see they're going all the way up, to today at 480,000,000. We've got 12 schemes on-site for £72,000,000 and our immediate pipeline of 145,000,000 is for 20 schemes. Those schemes are expected to be on-site within the next twelve months. So you can see the development team are gonna be particularly busy over the next twelve months.

13:52 And schemes in our extended pipeline, £263,000,000 for 37 schemes. These are where we are the approved partner and we are going through the various NHS approval processes and planning, etcetera. And therefore, completion on those average building is in between fourteen and eighteen months. So, you're you're looking at four or five years before they're actually completed.

14:16 So what are the benefits of development to us? Why don't we just stick to acquisitions and continue to acquire in the open market? Well, as you can see, we've got an access to a really healthy pipeline. These are the highest quality assets in our market. We have twenty one year, lease lengths. We have no rent freeze, no breaks, and they are the highest quality assets. We can capture the development margin and these are relatively low risk. There's no speculative development. We don't buy land in advance. We take options on land and we only start on-site when we have a signed agreement for lease. About half of our pipeline of forward funds where we will capture around 15 10 to 15 basis points betterment on, on the open market yield on those assets. But if we develop them in house, which is around half of our pipeline, we can capture up to a 100 basis points betterment on that yield.

15:15 We talk about rents being set relative to construction costs because we operate on a cost plus basis where we speak to the NHS, we show them what the building costs us, and they apply a yield. If there is construction cost inflation, then by definition, the rent will go up and this provides a point of evidence, a new high watermark for rents in the particular area of that building, and therefore we can gain rent reviews on our existing portfolio and drive rental growth. Having these direct conversations with the NHS, is helping to drive adjacent opportunities, which Jonathan will come on to, but it's incredibly important to have these relationships with the NHS, with the doctors directly, because we're definitely seeing, further opportunities for us moving forward.

16:03 And everything that we do with our development supports our commitment to our innovation and sustainability. As Jonathan talked about our six by six, what we're what we're able to do with our buildings because we've got so many on-site. We allow to pick a couple, to sample and trial new technology, new innovation, and new sustainability, which will then set the tone for the buildings of the future and that is very important.

16:30 So just to cap in terms of the the first half, we've had continued growth that 117,000,000 of our acquisitions and and developments. We have maintained our capital discipline. We have raised sustainable financing at fantastic, industry leading rates of 1.625, and the strategic focus on our development is paying off as we see that pipeline continue to grow and the number of inquiries increasing. Back to you, Jonathan. Thanks, Jane. So hopefully, gives you a good overview of our performance for the first half of the year. So what I'd like now I'd like to do is have a look more at the pros prospects of the business and what we see, coming down the pipe. So one of the key areas for for future potential growth is to do with organic growth, and that's to do with our ability to grow our rent roll and increase our rents across our portfolio.

17:28 So Jane has already explained how this mechanism works. And if you look at our performance in the first half, we achieved an overall, level of of rental growth of 2.1. And that was one of the significant contributors to the valuation gain of 28,000,000 that Jane spoke about earlier. That linkage to construction cost inflation obviously means that in the current environment, I'm sure you've all read headlines about increased costs, disruptions to supply chains, some of that. So an obvious question is, is that starting to come through in higher rents? Well, the short answer is yes. We

18:02 are seeing increased costs, and therefore, as a result, we're able to negotiate higher rents with the NHS. The cautionary note, is that each of these is negotiated on a site by site basis, and therefore, we need to have a development in that location to enable to drive rents in that location. So it's inevitably gonna take some time, to come through.

18:28 In terms of the market, we continue to see very strong demand for our assets. So if you think about the nature of our of our sector, you've got very long leases. You've got a very secure covenant effectively. You've got an NHS backing. You've got a tenant that's very unlikely to to relocate. So you've got very predictable and very steady returns. And I think that's reflected in the relative attractiveness for the sector, and I'm sure you're not surprised to hear that we continue to see real competition for any assets that come onto the market. There's ourselves, there's PHP, and there's BlackRock, the large US investor. All three of us are active right across the board. And if any assets are actively marketed, then the three of us will be in a competitive bidding process. So inevitably, this leads to to competition, and you you're inevitably going to result in slightly higher prices. So in the first half, we saw a relatively modest uptick in the yield, two basis points, but that was part of the factor that drove the valuation gain that that Jane was talking about.

19:30 Now we always get asked about what the outlook is for for, for for our yields, and it's it's it's always one that is almost impossible to answer. So if we look ahead, you know, we can see transactions, you know, that are still in the that are happening in the market right now, and that gives us confidence that we can't really see any reason for prices to come down. But equally, it's very hard to give us a firm prediction to, investors about about the likelihood or the potential scale of any of any valuation uplift. But I think, Paul, the key things in this slide is if you have a look at the at the performance over the last fifteen years, it's a picture of real stability, gradual movements, and that should give investors some comfort as to the sustainability of the current levels.

20:17 In terms of key trends we're seeing, I mean, ASSURA is all about trying to understand where the market is going and seeing whether we can get ahead of those trends and respond for our customers. So if if we take the four key trends I've highlighted here, each each in turn. So the first one is about the demand for face to face appointments. So you have read all the headlines in the papers about, the lack of ability to see your GP, how, you can't get a face to face appointment, that people are being forced to have digital consultations against their will. There's been a lot of quite emotive language used in this area. But I think the key thing here is, you know, we definitely have seen a shift. So pre COVID, it was almost in almost always a face to face consultation.

21:02 Post COVID, we're seeing forty to fifty percent of consultations now being done over the telephone or online.

21:10 Very difficult to see that dramatically changing anytime soon, though there's definitely a demand and pressure to increase that face to face, ratio again. This idea of a kind of a mixed economy and a mixed delivery model, I think, is is what we're likely to see. So we're already working with our customers to understand exactly what that might mean going forward and to make sure that we're adapting our buildings to make them as, as flexible as possible so they can respond to those trends. Another trend we've seen is an increasing requirement for mental health services. So the backlog in services for elective surgery, for NHS treatments, that's all over the the press pretty much on a daily basis. But actually, the pressures on the mental health system, that doesn't get the same level of press coverage, but it's no less real. There's a real backlog on, counseling services and mental health treatments as well, and this requires high quality space to deliver it.

22:06 The third one is in terms of net zero carbon. So clearly, today is the last day of of COP twenty six. Yesterday was the built environment day for COP twenty six. In fact, we were one of the sponsors of the BPF's virtual pavilion, which was highlighting and showcasing some of the best examples of how real estate is rising to the challenge and trying to meet the challenges of sustainability. The NHS is really committed to this. They've they've set themselves a target of being the, the the the first, the a global target of being the world's first net zero carbon health system. Clearly, we need to play our part, to support them in that, and that's exactly what we're doing by supporting our sustainability objectives, working on our new build, targets of a net zero carbon, but also improving the performance of our current building with you know, for example, we've got 30, improvement projects for our EPCs going out, over the next few weeks.

23:05 The last key element that I'm highlighting here is is the age old debate about how we're going to pay for this increased demand of health care. It's really notable that this government has been, really keen to highlight that it is funding the NHS at at record levels. It's it's committed to continuing to increase the level of funding both in a general basis and also to have a look at,

23:28 to have a look at specific areas as well. So there was specific funding in the budget for diagnostics, and there was specific funding in the budget for surgical hubs as well as a significant increase in the overall funding level for the NHS. So a very clear statement of intent from this government that they see the NHS as a real priority and as and as an area where, politically, they think there's votes to be got from investing more money in the NHS, which is very reassuring for the future funding outlook.

23:58 So how does all that relate to us?

24:01 So what we've done is we've we've analyzed and addressed looked at these trends and thought, well, what do we need to do to respond to some of these challenges that the NHS is seeing? Well, how do we need to perhaps, you know, behave in a slightly different way or respond to to some of these? So the first one here is about that move to, supporting diagnostics and trust. So this is more, you know, different types of capacity, different types of buildings that can be delivered still for the NHS, but they wouldn't have any GPs in them. So a little bit different to our current current infrastructure, but fundamentally a very similar building. So you can see there, there's a picture there. That's a building in the Northeast Of England.

24:38 That's a scheme that's currently in for planning that we hope we hope to get approval for any day, and subject subject to that, we're hoping to get on-site early next year. It will be a clinical facility. It will be a training facility, and, also, it will have capacity for for primary care, you know, essential capacity for that for that NHS trust in that region supporting the delivery of services in that locality.

25:02 The next one is mental health. So I've just mentioned that there's a backlog in services, and one of the key issues here is that the quality of the estate is extremely poor. So what we have to do is is what we've what we've been doing is talking to the NHS about whether there is a need for further investment in these types of assets. So far, it's very early days. We've acquired two assets, but the conversations would seem to point that there's significant demand and desire for a professional landlord developer such as ourselves to support the NHS in this area.

25:32 The third one on the slide is primary care at scale. So the traditional model for primary care is an individual practice, and it's run like a small business. It is a small business. It's run independently. It's got its own back office. It hires and fires independently. It sources its own HR, its own training, its own IT, all completely standalone. So this increasing trend for practice to come together to collaborate. So the advantage here is they can share back office costs, but also they can pool resources. So the doctors can share shifts across the

26:02 different premises. They can choose who works weekends, who works evenings, etcetera, and that's much easier to manage with a larger workforce. This presents a big opportunity for sure because we could now potentially talk to partners who rather than just owning one building could potentially own 20 buildings or 30 buildings. There were two large players in this space, and I'm pleased to say that we've we we're working with both of them on their estate and how we can help them going forward.

26:28 And the last one on the slide is an example of a private health care provision. So this is for Ramsay Healthcare, the Australian health care operator. And this is a specific example of a orthopedic day case unit that we delivered for them in the Midlands. So this is a it's it's a private business, Ramsay, an Australian private listed business running that facility. But, actually, what they're doing is they're providing services to the NHS. So the vast majority of their income comes from referrals from the NHS with a very small element of private pay. So just another example of another way of trying to meet the capacity constraints of the NHS. And frankly, to clear the current backlog, we're gonna have to have a partnership between the public and private sectors to address those challenges. So in terms of what we've got looking forward, we've got a very strong pipeline at the moment. So we've got a £102,000,000 in acquisitions there in the in the center of the chart.

27:24 This is a we'll we'll have those monies deployed within within six months. Three to six months is the typical time for us to to make the complete those deals. And on the left there, you can see the development pipeline that Jane has already spoken about. 72,000,000 on-site, 145,000,000 in the immediate pipeline, and 263 in extended. So getting us to that all time high level of 480,000,000. And then thirdly on the chart is our asset enhancement activity. This is really essential work, you know, driving rent reviews, physical extensions, agreeing lease extensions, really important valuable work that drives the valuations for our assets, and there's a significant pipeline of activity that we're looking to deliver on this area as well. So what does all that mean for our for our prospective growth? Well, this chart essentially illustrates that if we do everything that I've just referred to in our pipeline, what would it mean for our income level?

28:19 Well, you can see here, it would take us from, just over a 127,500,000 up to almost a 160,000,000, as we build out and complete those projects. Now those will take place over many years, so this isn't a this isn't a short term, short term illustration, but this is an indication of how much growth there is in the business today based on known projects, unknown activity levels. So if we look back on our first half, we reflect on a very busy first half and excellent progress across the board, across acquisitions, across developments, but also across, across our asset enhancement. We're also continuing to embed our six by six emphasis. This is our social impact and sustainability strategy.

29:06 This is about doing the right thing, and it's also about going about business in a fundamentally different way. It's it's a long term project, and it's one we're fully committed to, and we've made some excellent progress in the first half. Thirdly, it's about responding to the requirements of our customer, the NHS, and the challenges and challenges and threats that COVID has has has caused and us responding to that urgent need for additional capacity in the community. So overall, it's been a very successful first half. We've continued to deliver significant growth. And as Jane has highlighted, referenced the the 7% growth in our earnings in the first half, and we look forward to the second half of the year and beyond with confidence and optimism. That's great. Jonathan, Jane, thank you very much indeed for updating investors this afternoon.

29:54 Ladies and gentlemen, please do continue to submit your questions using the Q and A tab on the right hand corner of your screen. But just while the company take a few moments to review investor questions submitted during today's call, I'd like to remind you that recording of this presentation, with a copy of the slides and the published Q and A can be accessed via your Investor Meet company dashboard. I'd also like to remind you that your feedback is important to the company. And immediately after this presentation has ended, we'll redirect you in order that you can provide the company with your views and expectations. Jonathan Jane, obviously, investors have submitted a number of questions. Hopefully, you can see those in the q and a tab on the right hand side of your screen. If I could just hand back to you and ask you to read out the question and give a response where it's appropriate to do so, and I'll pick up from you afterwards. Great. Thank you. So thank you for a very full list of questions. Do please keep submitting them. We will do our best to to respond to all of them, and and we'll get through as many as we possibly can in a time.

30:47 So the first question is from Krishna, and it says, could we provide some more details about yesterday's equity raise? It's a really good question. So this presentation is our interim results presentation. And then simultaneously with this yesterday, we announced a fundraise. Now because the one came before the other, we haven't referenced it in this in any of these slides. So what we what we have completed is a gross proceeds of a £182,000,000 have been raised from investors. So a wide range of investors, both institutional and private. We had a very positive and strong response, from our shareholders, both existing and new. And we've now been able to secure additional funding, takes our loan to value ratio now down to 31%, which gives us significant capacity to deliver on some of these growth plans that I've highlighted and some of these more medium and long term, opportunities.

31:44 So delighted with the success of the of the raise. We'll receive the the capital next week. We've got a very strong use of proceeds agenda. We've highlighted those pipelines, the acquisition pipeline that will be delivered within six months. That's a 102,000,000. Then we're on-site with 72,000,000 for developments, and then our immediate pipeline will also be invested in that time period. And then we have our asset enhancement projects. So we've got a lot of activity to support and deploy the capital that we've raised, and and we're really pleased with the, with the success we had yesterday. So the next question is from Nick, and it's, about how do you find and assess new locations for suitability? So, yeah, really good question. So essentially, what we do is, we'll have an ongoing conversation and dialogue with the with the local doctors.

32:33 So we'll know, for example, through through through our regular interactions that there might be, the the the picture that I've got here on the slide is in Hereford. Let's So take that as an example. So in Hereford, this scheme is one we've been working on for a number of years. So we will have started the conversation with the doctors, identified that, frankly, their current premises were not not suitable, were not up for what they were trying to achieve. Have a conversation about their ambition. Would they be interested in a new building? You know, how big would that have to be? What sort of additional services would they would they be interested in providing? And we'll do an initial assessment as to to the viability and feasibility of that in that location. So we'll then then talk to the local NHS team and make sure that there is a there's a need and a and a commitment from that local team to support additional investment in that locality.

33:21 Now if there is, we will then work with the doctors to build up the detailed plan. So that will be, you know, the design, the clinical case, the business case, and all the other elements that go round it. And once we've got approval from the NHS in principle, we will then work to identify a suitable site. Now that's really crucial because people don't like to to move doctors, and they certainly don't like their doctor to physically be a long way away. So you're quite narrow actually in terms of your geography of where you're able to look at, but we'll look for available sites. Very fortunate that we are we are delivering health infrastructure. It's it's a really it's a big net positive contributor to the community. So we very rarely get negative feedback from communities about us sighting a medical center next to them or in their in in their community. So that means we can often use quite difficult sites or or or sensitive sites in some ways and even sometimes build on on Greenbelt, for example. That that can that can often be the answer. It's not our preferred answer, but it can it can it it can be the solution sometimes. So hopefully, that gives you a bit of an indication as to how we go about selecting our sites.

34:31 Thank you. So the next question is from Matthew, and it is with only a two basis points improvement in net initial yield during the period, is this a sign that yields are as sharp as they will get? Good question, Matthew. So, I mean, I referenced in the presentation a little bit about the outlook, and I was being very careful not to give you a precise, you know, give you a forecast because we don't we don't issue forecasts. But I was also trying to get across to that we still see a really competitive market here. So it's difficult. I think probably what you're really saying there is are we calling the top of the market? And I would it's very difficult to make that statement at the moment. We're still seeing a lot of activity, a lot of competitiveness around around bids. And so clearly, there's got to be further potential for for for price increases and yields to come in a little bit further. How much is almost impossible to say.

35:24 Okay. There's another question from Matthew. And on this one, I might ask Jane to to come in and and talk about this, which is as the pipeline grows, how does the yield on cost change? Thanks, Jonathan. In terms of the in terms of the pipeline, we're at our development pipeline, that has increased significantly. The yield on cost doesn't change other than the facts of, some of them being, in house developments and some of them being forward fund, developments. If you actually look at our additions overall in the first half, we, we added those to the portfolio at 4.9%. That was a particularly strong first half. We, we acquired some of those assets or rather we started negotiating on some of those assets a little while ago. And so we we we're probably pricing a couple of those at prices from twelve, eighteen months ago.

36:18 As Jonathan said, we don't give forecast, but if we look at our pipelines, our our net initial yields on our portfolio is probably a good barometer and and benchmark in terms of of where yields generally are on on, on our additions. But it all depends on on the actual asset. It also depends on whether we source it in house or or whether we, go through agents. As Jonathan said, it's very competitive. So sometimes those those yields can be can be a lot keener, but we also have this database of of all, practices and medical centers in The UK, and we can actually, through our brand, our reputation, our connections, we can source around half of our assets off market, and therefore, we can generate a a slightly higher yields on those, which, which is obviously beneficial for us. And if you go back to the slide in the deck where we added 1,100,000,000 of additions over the last four and a half yield years. You can get an idea then in terms of, what we're acquiring at and also the weighted average and expired lease term on those. And and and we've done a very good job, and we we, we will remain doing so going forward.

37:24 Thanks, Jane. That's that's very helpful. So just turning on the next question, that's from Eduardo. Actually, there's there's there's a there's quite a lot of questions, about 10 questions in in this one. There are lots of other people with questions coming up. So what I'll do is I'll I'll just take a couple from this to start with, and then if we've got time, we'll we'll come back if that's okay. So so the first question is, can you elaborate on how the development process works for private operators? How do these deals come about? And what how do you underwrite rent levels and and returns on those? So so Ramsay is a really interesting one. So they were tenants of ours in in a building up up in Middlesbrough. That was our, and they provided, surgical care from from within our our our building. This had primary care on two floors and then had a surgical floor. Half of it led to the NHS, half of led to Ramsey. The Ramsey side was phenomenally successful.

38:20 They needed additional capacity. So they approached us about delivering finding them some additional space. So we built them a purpose built center just within a mile of the of that location, and hence, that started that started that relationship. And there's a a local a local developer that was also closely involved, and we've continued that relationship ever since. So it's essentially built on a track record, built mutual trust between the parties, and we delivered successful projects for them, and they're very happy, therefore, to bring future projects to us. So that's essentially how it works. It's not a complicated process that we're we've we've worked well together so they so they come back to us for for future opportunities. We've got we've just completed one this year.

39:06 We're hoping to start on-site with them shortly on a further and and really interestingly, they're quite ambitious for further growth, so there might be another two or three schemes potentially for us. Private sector is is now running at about 5% of our rent roll. It's unlikely to get materially bigger than that, but it's still a very attractive part of the market for us, and it's an area where we're we're very happy to continue to operate. So in terms of pricing, asking about pricing and rental yields. So so rental yields rental levels rather, this is this is very much linked more to the wider market rather than to GP surgeries. It's a different mechanism. Effectively an open market mechanism, and it's a negotiated rent on entry. We tend to have indexation on these leases.

39:52 So, clearly, the rent review mechanism is noncontroversial. It is a it is a calculation. So that means there isn't any complicated reading across to other sectors. And in terms of level of returns, then pricing on these assets has been slightly slightly ahead for us. So so slightly better returns for us than core NHS assets and GP surgery because it reflects a slightly a slightly higher risk. Though the funding for Ramsay is almost all, is almost all NHS anyway. So effectively, you do have a quasi NHS backing behind behind the covenant. The next question is is how is the pharmacy segment faring? Do you have plans to potentially sell these assets and recycle capital into development acquisitions?

40:38 Really good question. So, yes, the pharmacy is really interesting. The market has changed quite fundamentally. So pharmacy has used to be absolutely central to every single development we produced. It would be a significant contributor to the financial returns upfront because the pharmacy offer would pay a significant premium, hundreds of thousands of pounds to be in a medical center because they saw that as the the number one destination for for pharmacy. Still is very desirable, but those premiums are no more. So it's it's now a much less important part of, our overall return for a scheme. They tend to be now even smaller, so they're getting smaller. We're not seeing material rental growth in that sector anymore, so so the rental levels are not are not growing significantly. So it's becoming a much, much smaller part of our overall of our overall proposition.

41:28 Would we like to sell them? It's very hard because they've they've they've integrated within our existing centers. So we wouldn't really want to carve up because effectively, you'd have to you'd have to to sell off part of our part of our building. So, I mean, this building here, Station Medical Center, for example, you can't quite see, but just to the left, the corner there is actually going to be is is a pharmacy unit. It's right in the building. So that's really quite challenging to sell that off. But, obviously, if we could, then we would be able to recycle the capital, but it's not it's not not really practical. Now because there are so many other people asking questions, I will pause there on Eduardo's. We can come back perhaps to, he's think he's got three further questions there, which we can come back to perhaps, but I think it's only fair to to move on to the next question. So next question is from Michael. What is your view on expansion outside The UK either directly or through partnership?

42:21 So in terms of in terms of other geographies, we have we obviously consider this all the time. You know, clearly, expansion is a is an obvious possible route for us for to continue our to our growth trajectory. We have evaluated a number of markets. There's only really one market that we've given any really serious in-depth thought to, and that's Ireland. That reflects the fact that it's got a very similar setup to to The UK in terms of dynamics. It's got an aging population. It's got a growing population. But it's also got a very similar dynamic in that it's got very poor quality primary care infrastructure, and they're trying to alleviate alleviate, rather, the pressure on the hospitals, so they are investing money in primary care. So there's a lot of fundamentals there that are very similar.

43:10 You don't have you you also tend to lease directly, to, the HSE, which is the equivalent of the of of the NHS. And and the doctors tend to take a much smaller space, and it provides a broader range of community services. So it's definitely an interesting market. The thing that's held us back and holds us back really is is just need to be sure that it's a scalable market because there isn't really any point in in entering an international geography, set all setup cost, legal, professional, everything else, currency, and all of that, unless we have confidence that there's a a material opportunity. So so we continue to monitor that, and, obviously, we'll update the market in due course, you know, if if our position changes. So next question is from David, and it is, actually, there's two questions in here. So first one is how are staffing issues affecting matters going forward? And then the second one is about, likely increases in interest rates and how will that affect us going forward. Maybe I'll ask Jane to cover that second part about interest rates and our outlook, and and how we protect ourselves from that.

44:15 And that first one, staffing issues. This is this is a really pertinent question because really the this is one of the big issues that the NHS is facing at the moment is is workforce. So we're seeing, an increasing number of GPs retiring early. The government had a really ambitious target, if you remember, for hiring 6,000 new GPs within five years. I think we're we're pretty much at the end of that five years, an absolute number of GPs has gone down. So that's not gone terribly well. So there is undoubtedly a a staffing shortfall. In terms of the direct impact on our business today, it's been very limited. Clearly, it is a problem for the system as a whole. And what we're finding is some of the smaller practices are really struggling to to remain open and really struggling to recruit, and and we are seeing an increasing number of smaller practices closing.

45:05 We haven't seen that in our portfolio at all. It's something we continue to monitor very closely. Where we have had issues with practices because of of staffing. Generally, what we found is the NHS is really keen to keep these practices open. They're absolutely essential to the to the infrastructure of of the local community and and the health economy, and they do everything in their power to keep them open. And and if the doctors, wish to stop, practicing because they're retiring, and it's happened to us in a handful of cases, the the local NHS teams have stepped in, taken over the lease, and they brought in new doctors to run those services because our types of building, by definition, are going to be absolutely crucial for that for that local environment. Now perhaps I'll pass to Jane to to cover off the interest rate risk in our approach.

45:54 Yeah. Thanks, Jonathan. So if we actually looked, we take the slide I I showed you earlier in terms of our average cost of interest is now 2.3%. But we did a bond in the summer at 1.625, and we still have some cash from the bond as well as the cash from our, our equity raise, which will be coming in next week. So we've got plenty of firepower to fulfill, the pipeline that we have, and the use of proceeds and beyond. So we are largely protected against that in the short to medium term. But I would also note that the margins on our debt are some of the lowest in the industry. So again, the popularity of our sustainability strategy and our a minus credit rating stands us in good stead moving forward to still secure, debt at attractive rates given the last one is a 1.625, last year was one and a half, and on average rate is is 2.3%.

46:47 So we have a we have a long way to go within before it starts to cause us an issue. But, but as I said, we've got plenty of cash resources available to us to fulfill the immediate pipelines and beyond, at the moment. Great. Thanks, Jane. So next question is from George and is in relation to developments. And, again, Jane, I might ask you to come back on this one if that's okay. So it's George, and it says, regarding developments, what is your target development yield, and what is your target EPC? Yep. No problem. So if we take our development yields, we talk about forward funds, and we talk about our in house developments. So a brand new asset, twenty one year lease, best assets in its in its its location. The pricing on that would be somewhere probably around 4%, maybe a little bit more.

47:36 And so if we're doing this as a forward fund, we will get about 10 to 15 basis points betterment on that yield because it's incredibly competitive market with us and and the other competitors we've mentioned. However, if we were to develop it ourselves, then we can capture up to a 100 basis points betterment on on that yield. So for example, in that instance, if we are, if the market is at four percent, then we will be developing at 5%. So you can see that's very good business for us. In terms of the I'm sorry. And just to be clear, we we don't actually publish the split, but probably around fifty fifty is is is a suitable measure in terms of what's forward funded and what's what's in house development. In terms of our targeted EPC rating, we have set a definitive target to get the whole portfolio up to an EPC b or above by 2026.

48:28 30% of our portfolio is already at this level, and our new developments are are all at at a's or very good or better. However, we have a full program of works for the remainder of the portfolio. But just to be clear, 50% of the portfolio is at a c, So it doesn't take a huge amount of capital spend on that asset, things like LED lighting, maybe some insulation work or PV panels on the roof, etcetera, new boiler to bring that asset up to a b or or an a, and that's a whole program that we'll be working on small, areas of of development and and, refurbishment over over the next five years to to bring those assets up to, to our target of a b. And in terms of cost on that, we're estimating somewhere in the region of 25 to £30,000,000.

49:19 However, we can also, wrap some of those, works into a regear of an existing lease. Therefore, we will capture evaluation uplift as we as we make that expenditure on some of those assets. Great. Thank thank you very much, Jane. So next question is in relation to developments and about what is our current market share in projects that we're winning on the development space. So so very difficult to be precise because there isn't really exact market data, but the sort of sort of feedback I get from the team about what opportunities that they're they're aware they're aware that we haven't won. Historically, we were running at about 25 to 33%. So one in four, one in three projects we used to win. Now in the last two years, we've then acquired GPI. We've acquired Apollo. We've increased the team. And the team are now telling me that they that we're now we're now just we're now better than half. So so one in two was slightly better.

50:16 We're now securing. So that hopefully gives you an idea of of our approximate. It has to be approximate because there isn't empirical data, unfortunately, for that. But, hopefully, that's helpful. The next question is about the split between in house and and forward fund. But, actually, Jane just referenced that before, so had already answered that. So if you think about it as a broadly fifty fifty split, then that then that's, that's the right way of thinking about both the current pipeline and and approximately going forward. Then moving on to the next question. It's for Matthew, and it's about approximately how long will it take to achieve the circa $160,000,000 rent on on slide 12. So that's the pro form a, rental growth. So maybe I'll I'll ask Jane to just take you through that one. Yep. So, if we, refer back to that slide, you'll, you'll remember it's each of our pipelines that we knew as at the September 30, and each of them will come through at different times. So acquisitions will be in the next three to six months. Rent reviews and asset enhancements will be anywhere from now to the next about eighteen months to two years. And the development pipeline immediate, on-site will be in the next twelve to eighteen months. The immediate will start to deliver probably in the next eighteen months to three years dependent on when they get on-site, and the extended will be on that. So all of that, you're probably looking we don't you're probably looking at four to five years in in total. However, it's worth noting that that is just what we knew about in the business at the September 30.

51:47 We continue to add to that, so we'll be continuing to add to the acquisition pipeline. We will be continuing to do more rent reviews and asset enhancement, and we will be continuing to add to our development pipeline. But that's just a snapshot of a of of a moment in time and and what that would lead to. Fantastic. Thanks, Jane. So the next question is from Nick. Do you see Zoom appointments taking over from phone appointments? And if so, what extra space is needed for this? That's it's a really good question. So actually, what's happened in practice, people talk about digital, so called digital consultations, but the but the reality is doctors are actually not that keen on the video consultation generally. So it has predominantly been telephone calls. Now, you know, is the scope for for that telephone call mix to move into into virtual consultations?

52:36 Absolutely. In terms of space now, interestingly, we have we have modified one of our practices where we took out two consulting rooms and replaced them with eight soundproofed video call booths that that that's easily done. It doesn't really need a great great amount of additional space. And in fact, many of the, you know, video consultations can be done from the existing desks in the existing consulting room. So doesn't really involve significant adjustments or modifications to the buildings. It's not a big CapEx requirement, and our buildings are really able to adapt to that as required, really. So next question is from David, and it's to do with use of funds and application to debt. So, Jane, I might ask you to come back on this one.

53:23 So the question is, will any of the current fundraising be used to clear down debt, or many or are many of the loans on a fixed interest basis, and are you happy to maintain them? So in in short, no. We won't be using any any funds to clear down debt. We've we've we've done all of our work on our debt on the last few years. We're very happy. As I say, the average maturity is eight and a half years. Our next, event will be in 2024 with our revolving credit facility, and following that, our fixed rate debt, will be in 2025. All of our loans are 3% or under, and like I say, they're long term fixed rates, so so we won't be, we won't be making any changes at this time. We're very happy. Great. Thanks, Dean.

54:09 Right. So next question is with David. So this is quite a a a challenging one. So you said you're in a competitive active marketplace. Do you read this as easier to expand by takeovers mergers? And if so, do you see yourself as being hunted or the hunter? Well well, that's a very difficult question to answer, David. So I guess the first thing to say is in terms of large scale portfolios, you know, we have been incredibly acquisitive of of buying those up. We call that m and a, if you like, because we've buying businesses. There are very, very few left. So what's left to go for really are lots of small scale opportunities in terms of individual sites generally, a handful of very small portfolios. Then there's there's there is a large couple of large portfolios which we're very interested in, but we'll continue to pursue them. And then there's the two listed players. So then, you know, clearly, you know you know, that's you know, m and a in the listed space is always quite complex, and we both trade on a significant premium to net asset value. So we've both got very happy shareholders. So it's difficult to to see see the motivation for that, but clearly, you you never know what what what the market might throw at us. So I would say I would look more to, growth through, you know, serial acquisitions. We've developed a really effective machinery for generating these deals and this development pipeline. So I probably found you, I think that's a more likely source of growth than m and a, but, obviously, m and a is impossible

55:40 to predict. So the next question is from Andrew, and it's, how do development opportunities in London compare with the rest of the country? Poorly is the is the is the short answer. So the problem here, Andrew, is because we operate on a cost plus basis with the NHS, the cost of land in London is so disproportionately high that it makes the rents almost unaffordable for the NHS. So what's happened over the last twenty years is that the NHS has has deferred and have said, no. We're not gonna fund that development because we don't wanna pay that rent. So, unfortunately, London has the worst quality primary care estate of anywhere in the country by quite some way. And the only way to fix that really is further investment and then it's just being willing to take on board some of those higher costs.

56:30 So watch this space. Obviously, we'd be delighted to deliver those schemes that we've got no issue with working in London, and it would generate some some very high rental levels, and we'll be very supportive of some of our other London assets. We'd be delighted to do more projects in London, But it's it's just very challenging to do so. So maybe just for the final question, if we go back to Eduardo's list of questions and go back to where where we were, His next question was to do with considering NHS funding issues. Do you have a sense if there was an appetite from the NHS to sell off some of their real estate ownership? Really interesting question. So about five years ago, there was a rumor in the market that the NHS was looking to put a billion pound portfolio in the market precisely for the reason that you've highlighted.

57:22 To take that billion pounds and invest it in brand new investing in new estate and creating and improving the estate. Certainly, that would make some some some sense. But I think in the end, that was that was stopped by the treasury because they they didn't they didn't see the financial merit in in that in that transaction because the government effectively can borrow at the rates of gilts, which is, you know, very low. And if we were to if we were to buy their assets, we'd be looking for a yield of of four and a half percent or so. So that doesn't didn't didn't make economic logic to the treasury in their opinion. So could that come back? Of course, it's possible. There is some logic to them selling off assets. And specifically in the NAIL report, it specifically recommended that in London, they should sell off some of their excess land, etcetera, precisely to answer the question we just had, which is to create the funding to make the economics work on on that really important investment in in the London, primary care market, which is required.

58:25 So hopefully that, that that helps answer that question. I know, we, unfortunately, we're now, we're now coming to the end of the, of the discussion, so perhaps we can close the Q That's and A great. Jonathan, Jane, thank you very much indeed for being so generous with your time and taking all the questions on. Perfect timing as well as we come up to the hour. Jonathan, perhaps I know that investor feedback is important to you, and I'll shortly redirect investors to provide you with their thoughts and expectations. But I guess before doing so, if I could just ask you for a few closing comments just to wrap up with, and then I will redirect investors for their thoughts and expectations. Fantastic. So first of all, say thank you for all the really, really insightful, questions, ranging across, you know, so many different topics and themes.

59:11 Really interesting. I'm delighted to have this opportunity to share our thoughts with you. And, hopefully, you've taken away with a real sense of progress in your fantastic business that's got fantastic prospects and really ready to meet those demands and those challenges that the NHS needs to create that extra capacity. So thank you very much for your time. Thank you very much for listening and, and all the excellent questions. That's great, Jonathan, Jane. Thank you once again for updating investors this afternoon. Can I please ask investors not to close this session as we'll now automatically redirect you for the order in order that you can provide your thoughts and expectations back to the management team? This will only take a few moments to complete, but I'm sure will be greatly valued by the company. On behalf of the management team of ASSURA PLC, we'd like to thank you for attending today's presentation.

59:57 That now concludes today's session. Good afternoon, and have a very good weekend.